An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Ole - Kristian Hope
University of Toronto

Tony Kang
Singapore Management University

Wayne Thomas
University of Oklahoma

Yong Keun Yoo
Korea University

Abstract: This study examines the relation between excess auditor remuneration and the implied required rate of return (IRR hereafter) on equity capital in global markets. We conjecture that when auditor remuneration is excessively large, investors may perceive the auditor to be economically bonded to the client, leading to a lack of independence. This perceived lack of independence increases the information risk associated with the credibility of financial statements, thereby increasing IRR. Consistent with this notion, we find that IRR is increasing in excess auditor remuneration, but only in countries with strong investor protection. Finding evidence of a relation only in strong investor protection countries is consistent with the more prominent role of audited financial statements in these countries.

Back to Session Listing

AAA Home Page